What are Betterments on Property in Real Estate
A betterment is, fundamentally, something that will make a house or piece of property more valuable. Classic examples are:
1) Public Sewer lines being installed along a road and/or hooked up to houses
2) Roads being put it where there were no roads
3) Public Water lines being installed along a road and/or hooked up to houses
4) Natural Gas lines being installed along a road and/or hooked up to houses
There are certainly other types of betterments. How do betterments come about? A typical (but simplified) example might be like the one below.
Lovely Street was scheduled as part of Happy Town's sewer expansion project. As a result, a sewer line was going to be run down Lovely Street, and 100 houses that could not before connect to municipal sewer, now would be able to join the sewer system. Sixty percent of the homeowners on Lovely Street supported
Betterments could impact you financially
the project. The estimated cost of the sewer line was 1 million dollars. Since each house would BENEFIT from the sewer connection, each house (all 100) on the street were assigned a betterment of $10,000, plus interest, to pay for the project. None of the homeowners were required to pay for any of the construction up front, but a lien (which is a loan tied to the property, like a mortgage,) was attached to each home. Each homeowner would be responsible for paying an extra $50/month to the town until the $10,000 was paid off (approximately 18 years).
Typical Situations with Betterments
1) Homeowners that don't want the betterment can still be (and often are) assigned the cost of the betterment, if the town goes ahead. This is to prevent the "free rider" problem in economics.
2) The towns borrow the money for the consturction, and typically charge the homeowners very low interest rates on the money.
3) All the information about betterments is typically available at the assessors office of each town. The vast majority of betterments are municipal - town or city based - but I suspect that it is possible for the state to also put betterments on a property.
4) Once betterments are paid off, there is no material impact to the property.
Things Home Buyers and Home Sellers need to be Careful of with Betterments
Some banks will not allow a buyer to purchase a home with a betterment on the property. The reason is they don't want the town's debt to come before the mortgage. When it comes time to sell, that oftentimes means the seller must pay the betterment in order to sell their home.
If you are a seller:
A) You may not be aware you are paying a betterment! They are often itemized on the tax bill you receive from the town. Although most sellers are aware, some are not.
B) If you are going to sell your home, find out how much it will be to pay off the betterment. You can try to pass the cost to the buyer (and many sellers do successfully), or, it may be worth it to pay it off and remove the lien.
If you are a buyer:
A) Check to see if there are betterments on the property you are purchasing. Asking the seller is usually sufficient, but not always.
B) If the property that you are interested in has a betterment, and the seller is not able/doesn't want to pay it, see if it will be a problem for your mortgage.
C) Large betterments may have an impact on the valuation of the property. Most betterments are not large, however.
Hopefully this will help you understand what betterments are, and you can be one step closer to being a knowledgeable house hunter!